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Berkshire Hathaway Acquires Remaining Interest in Wesco

Source: WSJ-Erik Holm

Posted on 07 Feb 2011

Berkshire Hathaway Inc. announced an agreement to acquire the remaining 19.9% of Wesco Financial Corp. that it doesn't already own for roughly $548 million. The deal was approved by the independent directors on Wesco's board. The other shareholders besides Berkshire still must approve the transaction.

Payable in either cash or Berkshire stock, shareholders will be entitled to about $387 per share, though the price will change based on gains or losses in Wesco's investment portfolio, the amount of time it takes to complete the deal and other factors.

The $387 price is about equal to Wesco's book value per share, which matches the prices Berkshire's board said it would pay when it approached Wesco's board about a transaction in August.

The ties between Berkshire and Wesco are intricate and longstanding, with Berkshire's majority ownership stretching back more than three decades.Berkshire paid a little more than $30 million in cash for a stake now valued at more than $2 billion.

Wesco is run by Berkshire Vice Chairman Charlie Munger, Mr. Buffett's 87-year-old second-in-command, who once called the ongoing existence of Wesco as a separate public company an "historical accident."

The deal marks another step toward preparing Berkshire for a new generation of leaders. Mr. Munger has been less involved in Berkshire's day-to-day operations in recent years. While he hasn't announced plans to step aside, other senior people in the organization have. Lou Simpson, who for many years ran the investment operation at Berkshire-owned insurer Geico Corp., retired at the end of 2010.

Mr. Buffett, who serves as Berkshire's chairman, chief executive and head of investing, turns 81 this year.

Wesco, like Berkshire, is composed of several businesses that operate with a large degree of independence. It has insurance operations, a metal-cutting business called Precision Steel, and a furniture rental unit called CORT. Wesco had net income of $61.3 million in the first nine months of 2010, a 43% increase from the same period a year earlier. It hasn't announced fourth-quarter results.

Berkshire would use its Class B shares to pay Wesco investors who elect to take Berkshire stock. Mr. Buffett used the Class B stock to pay shareholders of Burlington Northern Santa Fe when Berkshire acquired the railroad early last year.

A deal would bring an end to the Wesco annual meeting in southern California, where some of Berkshire's most loyal investors have gathered in recent years after Berkshire's own annual meeting in Omaha, Neb.

Monday's press release about the transaction promised that Mr. Munger would hold an "Afternoon with Charlie" in Pasadena, Calif., this year if the deal is completed before early June.

Berkshire and former Wesco shareholders will be given the opportunity "to ask him questions about business, economics and life," the statement said. "But not about Wesco."